The Federal Housing Finance Agency has directed Fannie Mae and Freddie Mac to implement a congressionally mandated increase to their loan guarantee fees on April 1.
The initial loan guarantee hike will be 10 basis points. But additional g-fee increases may be coming, according to FHFA acting director Edward DeMarco.
The payroll tax cut extension bill passed by Congress on Dec. 23 requires that GSEs charge an average g-fee in 2012 of at least 10 bps higher than in 2011.
“In early 2012, FHFA will further analyze whether additional guarantee fee increases are appropriate to ensure the new requirements are being met,” DeMarco said last Thursday.
The lawmakers relied on a 10-year increase in Fannie and Freddie g-fees to cover most of the costs of the legislation that extended the payroll tax reduction along with unemployment benefits for two months.
The bill also directs the GSE regulator to adjust the g-fees so all lenders pay the same fee.
A recent FHFA report shows the 10 largest customers of Fannie and Freddie paid an average g-fee of 23 basis points in 2010.
The next tier of Fannie and Freddie’s customers (ranked 11 through 90) paid an average g-fee of 27 basis points in 2010.
The legislation gives the FHFA two years to implement a uniform fee structure.
“FHFA will announce plans for further guarantee fee increases or other fee adjustments that will then be implemented gradually over the two-year implementation window, taking into consideration risk levels and conditions in financial markets,” DeMarco told this publication.
Mortgage industry officials are dismayed by Congress’ decision to use Fannie and Freddie as a piggybank to fund tax breaks and other government programs.
“We have nothing against increasing fees to offset credit risk,” said David Stevens, president and chief executive of the Mortgage Bankers Association.
But it becomes “problematic,” he said, when legislators are setting premiums and diverting the funds for other purposes.
“Fees should be used to explicitly offset the risks of these portfolios, especially since have we have spent $170 billion so far just to keep Freddie and Fannie operating,” Stevens told NMN.
The extension bill (H.R. 3630) crafted by the Senate also requires a corresponding 10 bp hike in Federal Housing Administration annual premiums for 10 years. “This change does not affect the upfront premium charged by FHA for insuring loans,” according to a summary of the bill. (FHA already charges a 115 bp annual premium.)
Thanks to lobbyists working for the private mortgage insurers, the Senate drafters made sure that FHA would not derive a competitive advantage and capture more business due to the hike in GSE g-fees.
FHA supporters were relieved to find their premium hike would benefit the FHA insurance fund and not be used to pay for H.R. 3630, which also extends unemployment benefits and maintains current Medicare reimbursement rates for doctors.
The FHA premium increase will be phased in over two years.
The additional revenue will go toward bolstering the FHA capital reserve fund, which has a mere 0.24% capital ratio and a 50% chance of tipping into the red.
“Since the higher premiums go to the reserve fund and help offset credit risk, we have no opposition to it,” Stevens said. The former FHA commissioner also noted that the FHA hike helps to balance out the hike in GSE g-fees.
Stevens noted that the 10 bp hike in premiums should not have much effect on mortgage demand since interest rates are at historic lows.